In addition to potential industry realignment, what's notable about Hertz's merger are the terms. In October, Hertz pulled a cash and share exchange offer for Dollar Thrifty that valued the industry fourth player at $1.91 billion or $72 a share, on deteriorating market conditions, a negotiating deadlock and scrutiny from antitrust regulators.
Now, Hertz is paying up in cash at a 20% premium to its best previous offer, in a move that signals increased confidence in the prospects of the merger.
Hertz may look at Dollar Thrifty as a way to stay aggressive after already impressive 2012 share gains and stronger than expected earnings and guidance. It is paying Dollar Thrifty a record $87 price in the deal.
Already, Hertz had been expected to dust off its M&A playbook in 2012 and retry an acquisition of Dollar Thrifty to alleviate pricing pressures and wrench out cost savings, according to industry analysts.The combination of a premium brand like Hertz and a leisure brand like Dollar Thrifty may be similar to a tie up's like the Avis (CAR) $1 billion buy of Budget in July 2011 and privately-held Enterprise's 2007 acquisitions of National and Alamo, said Fred Lawrence an analyst with Avondale Partners in February. In February, William Kavaler a special situations analyst with brokerage Oscar Gruss & Sons said he expected Hertz to make a new offer for Dollar Thrifty in 2012, in a move that could add a budget brand to extend the lives of its luxury-tilted flagship vehicle fleet, improving profit margins. Avis, which abandoned a merger proposal with Dollar Thrifty last September amid a bidding war between it and Hertz, confirmed it wasn't interested in Dollar Thrifty earlier in 2012. Dollar Thrifty shareholders rejected Hertz's initial takeover offer in late 2010, Hertz upped its offer in 2011 t $72 a share. However, after a fall in Hertz shares in the fall of 2011, the offer became less economic and in October, Dollar Thrifty took itself selling block and launched a $400 million share buyback program. Shares of Hertz are up over 12% year-to-date on improving sales and a decrease in expense. Meanwhile, Dollar Thrifty shares are up over 15% in 2012, as of Friday's close. For more on bullish M&A bets, see why some activist investors are putting their money behind corporate spending amid an investor focus on austerity, -- Written by Antoine Gara in New York
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